EMU Governance: Policy Challenges at National and Euro Area Level

1
EMU Governance Policy Challenges at National and
Euro Area Level

• Philippe Moutot
• Deputy Director General Economics, ECB

2
Monetary integration

• Today I will present some reflections on three
  important aspects of the monetary integration of
  the New Member States (NMS) in the euro area
• the institutional integration of NMS in the
  Eurosystem
• the elements of the monetary policy
  decision-making process
• the fora for interaction between a single
  monetary policy and other policies

3
Institutional integration

• Integration process is based on the fulfillment
  of economic and legal convergence criteria that
  are identical for all NMS
• Prior to the introduction of the euro, central
  banks of NMS are made independent, monetary
  financing is prohibited, price stability is the
  primary objective of monetary policy
• Governors of the NMS central banks enjoy personal
  independence as member of the Governing Council

4
Institutional integration

• With a view to enlargement of the euro area, a
  new voting scheme has been agreed that becomes
  effective once the number of euro area countries
  exceeds 15
• It limits voting rights in the Governing Council
  to a maximum of 21 votes
• Executive Board members will maintain a permanent
  voting right
• Voting rights of NCB Governors will be subject to
  a rotation scheme once there are more than 15
  countries

5
Institutional integration

• A characteristic of the Eurosystem is its
  relatively decentralised structure
• MP implementation and many other tasks are
  jointly undertaken by the ECB and NCBs
• Monetary policy is defined by the Governing
  Council of the ECB

6
Decision-making

• Monetary policy decisions are based on a
  consensus of the Governing Council members
• The proceedings of the Governing Council are
  confidential and only the outcomes of the
  deliberations are published (in almost real-time)
• Monetary policy set by a committee is likely to
  be better informed than monetary policy set by a
  single decision-maker committee members bring
  different decision heuristics and preferences to
  the discussion
• A monetary policy strategy helps to guide the
  discussions and contributes to efficient monetary
  policy decision-making
• The Governing Councils decision making relies on
  technical input prepared by Eurosystem staff

7
Decision-making
Governing Council takes monetary policy decisions
based on an overall assessment of the risks to
price stability
Monetary analysis
Economic analysis
Analysis of economic dynamics and shocks
Analysis of monetary trends
cross- checking
Full set of information
8
Decision-making

• Governing Council is assisted by Eurosystem
  Committees which comprise delegates from each NCB
• Committees facilitate the coordination of work
  between the ECB and the NCBs
• Committees ensure consistency across countries
  and time
• Committees help share best practices and
  technical expertise on issues of relevance, and
  foster Eurosystem co-operation at staff level

9
Policy dialogue

• The ECB has close ties with EU institutions
• President attends ECOFIN Council meetings (on
  matters relating to tasks and objectives of the
  ESCB)
• President of the Eurogroup plus member of the
  Commission participate in meetings of the
  Governing Council (without right to vote)
• President and Vice-President of the ECB
  participate in meetings of the Eurogroup

10
Policy dialogue

• Eurogroup serves as an important forum for
  informal policy dialogue between the ECB, finance
  ministers and the Commission
• Preparation of Ecofin and Eurogroup meetings is
  conducted by several fora where the ECB, the
  Commission and representatives of Member States
  are represented such as the EFC, the EPC, and the
  EWG (each meeting 10 times per year). There are
  also the alternate formations - sub-committees
  and working groups of some of these fora.
• We also hold joint initiatives such as technical
  workshops with EU Commission, but we also have
  informal discussions

11
Policy dialogue

• Regular dialogue with European Parliament is
  in place
• President presents ECBs Annual Report
• President appears quarterly before ECON and
  reports on ECBs monetary policy and its other
  tasks
• Special hearings on specific topics e.g., briefs
  on progress on Target 2 Securities, the reform of
  the IMF, and the payment services directive.
• Members from ECON visit ECBs EB to exchange
  views
• ECB replies to questions submitted in writing by
  members of EP

12
Policy dialogue

• Dialogues are indispensable
• In conformance with Treaty requirements we
  address interdependencies between monetary and
  economic policies
• Explain how we interpret our mandate and how we
  conduct monetary policy and
• Explaining that price stability has been
  maintained in line with ECBs policy intentions.

13
Concluding remarks

• NMS are likely to obtain several benefits from
  joining the Eurosystem
• A successful transition to the single monetary
  policy, will require that central banks of NMS
  manage exchange rate stability and inflation
  expectations
• NMS will become fully financially integrated in
  the euro area with the introduction of the Euro
• Experience suggests that money market integration
  comes rapidly, while capital market integration
  requires more time and further efforts

14
Background
15
Background
16
Background